Are You Qualified To Own A Rental Property?
Owning a rental property is one of the most difficult tasks you can ever take over because not only does it grip you financially, it also can affect your mental well-being + attitude. During this article we will cover whether or not you are qualified to be a landlord, and, if not, what you can do to get there.
What we wish most people would realize is that if you want to bathe in the rewards of owning a property, you have to be able to weather the storm of risks when they come full circle. If you envision a quiet life of vacations, happy tenants, and no maintenance you are sadly mistaken on just how rentals work. What you will quickly see is that this is a thankless, 24/7, and unrelenting job that only gets more complicated as you continue to experience more + grow your portfolio. Let’s jump in to talk about some of the rewards, and then get into the risks you will endure.
Passive cash flow
– Almost 80% of US workers live from paycheck to paycheck. What this means is that one transmission repair could hurl them into debt overnight. Very scary! What rentals accomplish is the wonderful security blanket of knowing you will receive more money from your tenants in just 30 days. Now, as you begin your rental endeavors you may have just a couple units, but in time, if you grow to have 100 units you can see how easy it is to retire and live quite comfortably. What other professions offer this?
– When you are a W2 employee like most of the population you are at Uncle Sam’s disposal. Taxes are taken weekly whether you like it or not! With rentals you get to calculate your tax debt yearly. The benefit of this is that you have access to money for longer periods of time before it’s due. On top of that, you get to deduct virtually all expenses related to the property except your principal mortgage payment. So, if you make repairs, pay taxes, water bills, sewer bills, property management fees, leasing fees, etc. you get to deduct these from your taxable income. At the end of the year you spent all this money IMPROVING your property but the government looks at it like a loss; which is good for you! Reducing taxable income (legally) is wonderful! Does your W2 job offer this?
Developing A Skill Set
– The beauty of real estate is that in time you will cross paths with a huge variety of related professionals. From lawyers, to insurance agents, city officials, tax assessors, maintenance workers, property managers, and so on. You will be establishing relationships with these folks, and also developing a strong set of skills on top of your normal expertise. You can make a career out of real estate in many ways, and being able to navigate the waters of rental property will enable you to broaden your horizon + unlock potential successes you never thought were attainable! Imagine getting an education and it paying you!
Now let’s get down to the nitty gritty here. Rental property is not always warm and fuzzy. Sometimes it gets downright frightening and frustrating; often at the most inconvenient times. From disasters, evictions, and even deaths, you will have to be able to handle the negatives you come across without taking your eye off the prize.
A vacant unit is by far your LEAST favorite thing as a rental property owner. Not only is the unit not producing cash flow, it also is costing you in maintenance repairs, leasing fees, and time overall. Take a normal example we encounter often…a tenant leaves at the end of the month, then we discover they left furniture and every wall damaged. This can easily cost $5,000 for a 1000 square foot apartment. Then, the property owner has to pay to rent it out, and then wait another month for that tenant to move in. So, you can expect 2-3 months of dead time with plenty of costs in between. If you paid too much for a property this can throw your profits right down the tube. Do your best to avoid a vacancy!
Many owners we deal with will whine and cry when hit with maintenance expenses. We hold no remorse or empathy for them. The reason is because that’s what happens when you own a rental property. If you want to enjoy the rewards you have to be able to handle the downfalls. You may need a new roof, new heating system, or new electrical wiring. Suck it up and get it done. Real estate is a long haul, and each improvement you put into the property is increasing the value, reducing your taxable income, and making you a better student of the game!
Managing the property is not something many people think has value, however they don’t see how much money + time they are losing. Money and time are the 2 most valuable resources on earth. When you sacrifice them improperly you are doing a disservice to yourself personally and professionally. Hiring a quality manager to handle day to day items, rent collection, maintenance, leasing, and evictions enables you to spend time on things that matter. Don’t get us wrong, your property matters, but it matters more that it’s done right, not done for cheaper.
We would love to hear your feedback on this topic, and also, talk about your experience dealing with home insurance companies! Post a comment below so we can start a discussion!
Gregory Rice is the Vice President of franchise sales for Nexus Property Management™.
Nexus Property Management™ is a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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